Risks to financial stability have increased says IMF
By Michael Millar
Wed 10 Oct 2012
LONDON (SHARECAST) - Risks to global financial stability have increased in the last six months, according to the International Monetary Fund.
The eurozone debt crisis remained the chief concern for the IMF, with worries about the health of several countries leading to significant capital flight from the bloc.
This had "undermined the very foundation of the union", the report said.
The IMF estimated that European banks would sell off the equivalent of $2.8tr (£1.7tr) in assets over two years to cut their risk exposure.
This was an increase of $200bn from its prediction six months ago.
"Despite many important steps already taken by policymakers, this agenda remains critically incomplete, exposing the euro area to a downward spiral of capital flight, breakup fears and economic decline," the IMF said in its six-monthly Global Financial Stability Report.
It said that while "significant efforts" by European policymakers had "allayed investors' biggest fears", little had been done to make the system more transparent and less complex.
Recent measures to stabilise Europe include the European Central Bank offering cheap loans to banks and the launch of the €500bn bailout fund, the European Stability Mechanism.
However, the IMF also singled out the looming 'fiscal cliff' in the USA, as well as high budget deficits and record debt levels in Japan, both of which needed to be solved "without further delay", it said.
It called for financial institutions and markets to be "more transparent, less complex, and less leveraged".
"Although there has been some progress over the past five years, financial systems have not come much closer to those desirable features," the report said.
"They are still overly complex, with strong domestic inter-bank [links], with the too-important-to-fail issues unresolved".
On Monday the IMF downgraded its prediction for global growth in 2012 and 2013, which included sharp falls in UK GDP forecasts.